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Why Get Listed?

Going Public/Getting Listed?

Going Public is when a Private company gets listed on the stock market to sell its shares to the public. In Uganda this is done through the Uganda Securities Exchange. When a company gets listed or goes public, there is a wide range of benefits that private companies and their shareholders can obtain from going public.

Benefits of Going Public/Getting Listed.

Fundraising: The main reason for going public is usually to increase the equity base of a company, thus allowing for future expansion and growth without the interest burden associated with the use of borrowed funds. A listing enables existing shareholders to raise substantial capital for their company by issuing shares to the public in exchange for a calculated price per share. The ability to raise funds from outside investors by the issue of shares is perhaps the most valuable of all benefits that accrue to companies on floatation.

Financial Benefits: An immediate benefit enjoyed by a newly listed company is the considerable improvement in its overall financial position. The injection of substantial equity funds greatly improves the companies gearing and important balance sheet ratios. With such capital reinforcement and good management, higher earnings and dividends are almost certain to follow.

Loan capital issue opportunities: Other types of share capital, such as preference shares, convertible or non-convertible, or loan capital such as debentures and notes which may or may not be convertible can be issued to raise further funds. The issue of such instruments by well-established and profitable concerns can be distinctly advantageous. It allows for an expansion in business without an increase in equity capital although the right of convertibility into ordinary share capital at a later date enhances the attraction of the instrument to investors. Such opportunities are undoubtedly far easier for a quoted company than for an unlisted one.

Mergers: A tendency towards amalgamation within an industry and the growth of conglomerates has been a feature of economic development over the past few years in most industrialized countries. Uganda is no exception. A merger scheme based on exchange of shares appeals more to the sellers when the shares they receive are listed on the securities exchange and thus marketable.

Acquisition funding: Acquisitions of any size are normally easier to fund as a public company. Private company ventures are often attracted to a sale where quoted shares are offered as opportunity to participate in the future growth of the combined businesses if they so wish.

Prestige and status: Going public will raise the level of awareness of the company and its product in both the investment community and the public generally. This can result, for example, in a greater ability to attract high caliber employees, unprompted approaches by potential acquisition candidates and increased general business opportunities. Public companies also benefit from access to useful information brought to them by their advisors, financial analysts, stockbrokers and shareholders. A company’s public profile at flotation and thereafter will depend on the individual directors and shareholders involved, the nature of their business and the time and expense devoted specifically to attracting publicity.

Market valuation: Shareholders and potential investors are able to check the value of their investment in the newly listed company daily by referring tom the price list of quoted companies as published in the media. This facility is a major advantage over investors in unlisted companies.

Liquid Assets: A portfolio of quoted shares is generally regarded as being a highly liquid asset as shares may be sold through the Securities Exchange with the least amount of time and inconvenience. For the reason quoted shares are a most acceptable form of security to banks and other financial institutions.

Avenue for investment: Quoted shares offer the investing public particularly institutional investors and pension funds, an attractive avenue for investment by virtue of their liquidity and the detailed financial knowledge and record of each quoted company that is available to the public. Many investors regard quoted as an attractive hedge against inflation.

Freedom to invest: By a public flotation, existing shareholders are placed in position to diversify their interests and invest in other assets elsewhere.

No restriction on transfer of shares: Shares in a private company can generally only be sold to the remaining shareholders in terms of the Articles of Association of that private company. For this reason, they often do not realize their full sale potential. Shares in quoted companies are, on the other hand, freely transferable.

Realization of investment: A key benefit that shareholders in private companies derive from flotation is the ability to dispose of part of their shareholders and establish a market valuation for the balance. When a company is floated the new investors will normally expect the management to retain sufficient holdings to guarantee their future motivation, but they would raise no objection to existing shareholders realizing part of the investment through the stock market.

Employee incentive: Both for existing employees and those to be recruited, the ability of companies to offer share options and employee share schemes is a key advantage of public company status. At the time of flotation preferential allotments of shares to employees, linked trade associations and associated companies may be permitted by the Listing Committee up to reasonable quantities.